China attempts to clean up its sleaziest regional banks

IT’S BEEN A bad year to be a big cheese in China. Billionaire entrepreneurs have been hounded. Over-extravagant entertainers have disappeared from the internet. Now a new type of tycoon is feeling the heat. The latest regulatory crackdown on what the government considers private-sector misbehaviour extends to businessmen with excessively cosy ties to banks. The fear is that insider dealing, preferential access to credit and lax corporate governance pose threats to stability, particularly in the regional and local underbelly of China’s financial system.

The most prominent red flag is Evergrande, a debt-ridden property firm close to collapse that until recently had a 36% stake in Shengjing Bank, a local lender based in the north-eastern province of Liaoning. The authorities are said to be investigating whether Evergrande, which is run by a billionaire, Hui Ka Yan, took control of Shengjing, with about 1trn yuan ($156bn) in assets, using illicit means, as well as conducting some 100bn yuan in related-party transactions.